Professional Documents
Culture Documents
3d 1267
42 Fed. R. Evid. Serv. 724
James M. Castner and Kenneth D. Sechler appeal their convictions and their
resulting sentences for committing major fraud against the United States, 18
U.S.C.A. Secs. 1031-1032 (West Supp.1994), and mail fraud, 18 U.S.C.A.
Secs. 1341-1342 (West 1984 & Supp.1994). They argue that the district court
erred because: (1) it departed from its impartial role and acted as an advocate
for the government during trial, (2) it incorrectly determined the amount of loss
under U.S.S.G.1 Sec. 2F1.1 during sentencing, (3) it failed to rely on specific
findings of fact to support its determination of each Appellant's ability to pay
the fines and restitution imposed, (4) it incorrectly enhanced Castner's sentence
for obstructing justice, and (5) it refused to reduce either Appellant's sentence
for acceptance of responsibility. Finding these allegations do not warrant
reversal, we affirm.
I.
2
This case involves procurement fraud against the United States Navy between
1989 and 1991. A jury found that during this time, Appellants and their
companies, Systems Engineering International, Inc. (SEI), and Gale Resources,
Inc. (GRI), made unallowable and illegal profits from sales of materials to the
Navy.
In 1986, SEI entered into a prime contract with the Department of the Navy to
repair, refurbish, and maintain, among other things, computer tape drive
systems installed on board various Navy ships. The contract required SEI to use
only parts and equipment which met the specifications of Miltope Corporation,
the original equipment manufacturer (OEM). SEI could obtain OEM-approved
parts only from Miltope, from the Navy Supply System, or from companies
authorized by Miltope. By late 1988, SEI experienced significant delays in
obtaining OEM-approved replacement parts. Thus, in January 1989, Castner
and Sechler incorporated GRI, an affiliate of SEI,2 to obtain reverse-engineered
Miltope parts from sources not approved by the OEM. GRI either obtained or
assembled the reverse-engineered parts and sold them to SEI at a price
substantially above GRI's cost but which was below the Miltope or OEMapproved supplier price. SEI then used these GRI parts to repair and refurbish
the tape drive systems under its contract with the Navy. For these materials,
SEI charged the Navy an amount equal to the price SEI paid GRI, plus a nine
percent inventory support charge which it based on the Federal Acquisition
Regulations (FAR),3 plus five percent for material handling costs as allowed
under the contract.
A government audit determined that between 1989 and 1991 SEI impermissibly
overcharged the Navy for materials under the contract by using the "price
method" rather than the "cost method" to establish its material costs under the
FAR, 48 C.F.R. Sec. 31.205-26(d) and (e). Castner and Sechler, their
companies SEI and GRI, and an employee, Kyle E. Scobey, were indicted and,
after a four-week jury trial, convicted of major fraud against the United States
and mail fraud for making illegal profits from sales of materials to the Navy.
Appellants first argue that the district court deprived them of a fair trial,
departing from its required impartial role by improperly questioning the
relevance of defense exhibits, limiting witness testimony, and extensively
interrupting the examination of defense witnesses to impose its own questions.
The district court has the duty to conduct a jury trial "in a general atmosphere
of impartiality." United States v. Cassiagnol, 420 F.2d 868, 878 (4th Cir.), cert.
denied, 397 U.S. 1044, 90 S.Ct. 1364, 25 L.Ed.2d 654 (1970). Furthermore, the
court "must not create 'an appearance of partiality by continued intervention on
the side of one of the parties or undermine[ ] the effective functioning of
counsel through repeated interruption of the examination of witnesses.' "
United States v. Norris, 873 F.2d 1519, 1526 (D.C.Cir.) (quoting United States
v. Liddy, 509 F.2d 428, 438-39 (D.C.Cir.1974) (en banc), cert. denied, 420 U.S.
911, 95 S.Ct. 833, 42 L.Ed.2d 842 (1975)), cert. denied, 493 U.S. 835, 110
S.Ct. 113, 107 L.Ed.2d 75 (1989). The court, however, must "exercise
reasonable control over" the interrogation of witnesses and the presentation of
evidence in order to ensure the effective determination of the truth, to avoid
needless waste of time in the presentation of a case, and to circumvent undue
witness intimidation and embarrassment. Fed.R.Evid. 611(a). Additionally, a
district court may directly interrogate witnesses under Fed.R.Evid. 614(b).
Particularly in a complex case involving numerous witnesses, the district court
has a crucial duty to ensure " 'that the facts are properly developed and that
their bearing upon the question at issue are clearly understood by the jury.' "
Seeright, 978 F.2d at 847 (quoting Simon v. United States, 123 F.2d 80, 83 (4th
Cir.), cert. denied, 314 U.S. 694, 62 S.Ct. 412, 86 L.Ed. 555 (1941)).
8
Appellants contend, for instance, that the district court assumed an appearance
of partiality by objecting to evidence that Castner sought to introduce of GRI's
expense reports for 1990. The record reveals, however, that the district court
did not object to Castner's proposed evidence, but rather ensured that the
documents offered were relevant before admitting them into evidence:
9
MR.
BOUCHARD [Castner's attorney]: Your honor, we move these [1990 expense
reports for GRI] into evidence.
10 COURT: What is their relevance? Just as a matter of curiosity. Has it got
THE
something to do with this case?
******
11
12 BOUCHARD: The relevance is that the government has put into issue the
MR.
compensation received by Mr. Castner. They made no determination or distinction
between the various accounting[s] and are treating it all as money received by Mr.
Castner. So I am breaking this out, that he has a legitimate business reason.
13
(J.A. 520-21.) We find no error in such comments, as the court was fulfilling its
duty to ensure that the proffered exhibits were relevant before admitting them
into evidence, as required by Fed.R.Evid. 402.
14
THE COURT: Excuse me. This is what that you are talking about?
15
THE WITNESS: This is the air bearing, Your Honor....
16
THE COURT: So [it] costs $192.64 per air bearing that you ordered[?]
17
THE WITNESS: Total cost. $42.77 in raw costs, approximately at the same as the
18
government's.
19 COURT: It cost you $150 to process that part through your company; is that
THE
what you are telling me?
20 WITNESS: If you distribute the overhead fairly or equally to all products, yes,
THE
sir, and that's how we have always done it in the other organization. If you start
dividing up-21 COURT: So that the air bearing you think would cost you $192.64 and [SEI]
THE
could buy it for $42[?]
THE WITNESS: No. [SEI] didn't pay $42. They paid $70 for it.
22
23 COURT: Oh, [$]70. I thought they could buy it from Nicholson Precision
THE
machinery for $42[?]
THE WITNESS: No, sir. They couldn't buy it from Nicholson Precision.
24
******
25
THE COURT: How much could SEI have purchased it for[?]
26
THE WITNESS: SEI purchased it from [GRI] for $55 in one case and [$]65-27
28 COURT: How much could they have purchased it from Miltope for if they
THE
purchased the original?
29 WITNESS: I am guessing, Your Honor, if they purchased it from, those
THE
figures will follow, but if you want me to guess now I believe the price, Miltope
price for this product was $65 and some change, and the [GRI] part price for this
product was $55 and some change. So [GRI]'s was slightly less.
30
(J.A. 596-98.)
33
approach to the case." (J.A. 823.) However, examination of the district court's
questioning of Sechler indicates that the questions were all meant to clarify
issues that had been placed before the jury, such as Sechler's payment of a loan
to SEI, the formation of GRI, and the role of various employees and officers of
SEI and GRI.
34
We find that the district court neither abused its discretion, nor committed plain
error. The presentation of this case involved four weeks of trial during which
dozens of witnesses testified and hundreds of exhibits were admitted into
evidence. The evidence was highly complex, involving the intricacies of
accounting principles, business management, and government contracting. The
district court interrupted and interrogated both defense and government
witnesses and properly questioned the relevance of certain evidence prior to
admission. In so doing, we find that the district court was simply fulfilling its
obligation to clarify confused factual issues or misunderstandings, to correct
inadequacies of examination or cross-examination, and to " 'otherwise insure
that the trial proceed[ed] efficiently and fairly.' " United States v. Morrow, 925
F.2d 779, 781 (4th Cir.1991) (quoting United States v. Cole, 491 F.2d 1276,
1278 (4th Cir.1974)); Cassiagnol, 420 F.2d at 879. The record indicates that the
remarks of the district court did not exhibit "such a high degree of favoritism or
antagonism as to make fair judgment impossible." Liteky v. United States, --U.S. ----, ----, 114 S.Ct. 1147, 1157, 127 L.Ed.2d 474 (1994) (recusal motion
based on alleged bias of district court judge). Rather, the district court's
intervention clarified the testimony and focused the jury's attention on the
critical issues in a highly complicated case. Seeright, 978 F.2d at 847. "A
judge's ordinary efforts at courtroom administration--even a stern and shorttempered judge's ordinary efforts at courtroom administration--remain
immune" and do not establish bias or partiality. Liteky, --- U.S. at ----, 114 S.Ct.
at 1157. Therefore, we find Appellants were not deprived of a fair trial.
III.
35
Appellants next argue that the district court erred during sentencing in
determining the amount of loss under U.S.S.G. Sec. 2F1.1(b)(1), which allows
incremental sentence enhancement based on the amount of loss caused by the
fraud. We review de novo the district court's legal interpretation of the term
"loss" under the Sentencing Guidelines, but "to the extent that the
determination of the amount of loss is a factual matter, we review only for clear
error." United States v. West, 2 F.3d 66, 71 (4th Cir.1993) (citing United States
v. Daughtrey, 874 F.2d 213, 217 (4th Cir.1989)).
36
The debate on appeal is over what should be included in the measure of loss
under Sec. 2F1.1(b). Appellants contend that the amount of loss should have
been limited to $51,557, which represented the nine percent inventory support
fee illegally charged by SEI.4 There is no dispute that $51,557 is a correct
measure of loss under the Guidelines. The district court, however, determined
loss based on SEI's material profit from the sale of GRI parts to the Navy
because this profit was a cost savings that SEI was obligated to pass on to the
Navy under the contract. The parties stipulated at sentencing that SEI's material
profit was between $200,000 and $350,000, which represented the profit SEI
derived by charging the Navy the price SEI paid GRI for the parts, instead of
charging the Navy for GRI's cost to produce the reverse-engineered parts.
Appellants reserved the right to challenge the district court's determination that
the loss to the Navy included SEI's material profit.
37
A.
38
The district court correctly determined that SEI's contract with the Navy was a
"cost plus" contract, and not a "fixed price" contract, and thus that the Navy was
entitled to the cost savings represented by the profits made by GRI in selling
reverse-engineered parts to SEI at inflated prices, rather than at GRI's cost of
producing the reverse-engineered parts. The district court specifically found
that GRI was a subterfuge created to allow SEI to charge the Navy more
money by hiding from the Navy the profit its affiliate GRI made on sales of
materials to SEI. SEI's contract with the Navy required it to sell parts to the
Navy at cost plus a five percent materials handling fee. Because GRI was an
affiliate of SEI, SEI could include GRI's profits in the costs it charged to the
Navy only if it demonstrated an established practice of intercompany transfers
at price rather than cost for commercial work, and the price was either
established by catalogues or market sales of substantial quantities to the public,
or resulted from acceptable price competition as provided in Sec. 32.205-26(e)
of the FAR.5 See United States v. Newport News Shipbuilding and Dry Dock
Co., 862 F.2d 464, 470 (4th Cir.1988) ("The profit realized from a contractor's
purchase of materials from a division[, affiliate,] or subsidiary cannot ordinarily
be included in the allowable costs charged the government.") (citing 48 C.F.R.
Sec. 31.205-26(e)).
39
The record reveals that SEI did not meet the threshold requirement, pursuant to
Sec. 31.205-26(e), necessary to charge the Navy for the price, rather than cost,
of materials.6 Castner testified that GRI did no commercial work at all during
1989. Nothing in the record indicates that SEI ever sold GRI parts to anyone
other than the Navy. Thus, because there was insufficient evidence of
"commercial work of the contractor [SEI] or any division, subsidiary, or
affiliate [GRI] of the contractor," GRI could not have had an established
practice of pricing "interorganizational transfers at other than cost for
commercial work." 48 C.F.R. Sec. 31.205-26(e). We find that the district court,
in order to determine loss for sentencing purposes, correctly found that SEI was
not authorized to charge the Navy for the price it paid GRI for materials, and
instead should have charged the Navy for the cost of obtaining those materials
(plus the five percent material handling cost permitted under the contract).
B.
40
41
"Loss" under the Sentencing Guidelines is "the value of the money, property, or
services unlawfully taken." U.S.S.G. Sec. 2F1.1, comment. (n.7); United States
v. Bailey, 975 F.2d 1028, 1030-31 (4th Cir.1992). In determining the value of
money or property unlawfully taken, we bear in mind that "in fraudulent ...
contract procurement cases, the loss is [equal to] the actual loss to the victim
(or if the loss has not yet come about, the expected loss)." U.S.S.G. Sec. 2F1.1,
comment. (n.7(b)). Payment fraudulently obtained in excess of the amount to
which a defendant is legally entitled is "a 'taking' of property" under the
Guidelines, and thus is a proper measure of the amount of loss for sentencing
purposes. United States v. Lara, 956 F.2d 994, 998 (10th Cir.1992). We agree
with the reasoning of the Tenth Circuit in Lara, a case with similar facts to our
own.
42
43
Here, SEI obtained payment for the GRI parts in excess of what it was entitled
to receive under the contract and the FAR. SEI was only entitled to receive
payment for the cost of producing the GRI parts plus a five percent handling
fee, but it received excess payment equal to GRI's profits from selling the parts
to SEI. This amount of excess payment was a proper measure of loss under the
Sentencing Guidelines. Lara, 956 F.2d at 998.
44
Furthermore, the GRI parts were not the OEM-approved parts bargained for in
the contract.8 The Navy required OEM-approved parts under the contract
because of trouble it had in the past with parts that did not meet OEM
specifications, although the supplying companies had claimed the parts would
perform as well as the OEM-approved parts. Because the Navy was unaware
that the GRI parts were not OEM-approved, it did not subject those parts to the
rigorous testing required to assure the quality and long-term reliability of
substitute parts. Thus, although Appellants contend that none of the GRI parts
have malfunctioned, the Navy did not receive what it bargained for under the
contract. The district court correctly determined that the amount of money
unlawfully taken--the illegal profit--is an adequate measure of actual loss under
Castner and Sechler were the corporate officers primarily responsible for SEI's
fraud. The district court correctly determined that SEI could not recover
material profits by charging the Navy for the price, rather than the cost, of the
GRI parts because under the terms of the contract SEI was obligated to pass on
the cost savings that the profits represented. The district court also properly
found that the material profits were a correct measure of loss because the Navy
did not receive the benefit of what it bargained for under the contract (OEMapproved parts). Therefore, we find no clear error in the district court's
conclusion that the amount of loss was the stipulated value of between
$200,000 and $350,000, and affirm the calculation of Appellants' sentences
based upon that conclusion.
IV.
46
Appellants argue the district court erred when it failed to rely on specific
findings of fact as required by this Circuit concerning each Appellant's ability to
pay a fine, 18 U.S.C.A. Sec. 3572(a) (West Supp.1994), and restitution, 18
U.S.C.A. Sec. 3664(a) (West Supp.1994). United States v. Piche, 981 F.2d 706,
718 (4th Cir.1992) (restitution), cert. denied, --- U.S. ----, 113 S.Ct. 2356, 124
L.Ed.2d 264 (1993); United States v. Harvey, 885 F.2d 181, 182 (4th Cir.1989)
(fines); United States v. Bruchey, 810 F.2d 456, 459 (4th Cir.1987) (restitution
under predecessor to Sec. 3664). Specific findings of fact on the factors set
forth in Sec. 3572(a) and Sec. 3664(a) are necessary "to assure effective
appellate review of restitution orders" and fines imposed. United States v.
Molen, 9 F.3d 1084, 1086 (4th Cir.1993) (restitution), cert. denied, --- U.S. ----,
114 S.Ct. 1649, 128 L.Ed.2d 368 (1994); United States v. Walker, 39 F.3d 489,
492 (4th Cir.1994) (fines).
47
In determining the imposition and the amount of restitution under Sec. 3664(a),
the district court must "consider [factors such as] ... the financial resources of
the defendant [and] the financial needs and earning ability of the defendant and
[his] dependents." 18 U.S.C. Sec. 3664(a). The district court must make explicit
factual findings as to these factors, and should key these findings "to the
specific type and amount of restitution ordered." United States v. Plumley, 993
F.2d 1140, 1143 (4th Cir.) (per curiam) (citing Bruchey, 810 F.2d at 459), cert.
denied, --- U.S. ----, 114 S.Ct. 279, 126 L.Ed.2d 230 (1993).9 In determining
the imposition and amount of a fine under Sec. 3572(a), the district court must
consider, among other things, the income, financial resources, and earning
capacity of the defendant, as well as "the burden that the fine will impose upon
the defendant" and his dependents. 18 U.S.C. Sec. 3572(a). A district court
may satisfy these requirements if it adopts a defendant's presentence
investigation report (PSR) that contains adequate factual findings to allow
effective appellate review of the fine or restitution. See United States v.
Gresham, 964 F.2d 1426, 1431 (4th Cir.1992) (affirming $80,200 fine when
PSR indicated defendant's potential earning capacity was "above average");
Molen, 9 F.3d at 1086-87 (noting that incomplete or unclear findings in the
PSR may preclude effective review of restitution).
48
49
The district court here adopted the factual findings of each Appellant's PSR.
Appellants contend, however, that the PSRs do not contain sufficiently detailed
information about the earning capacity and the financial needs and resources of
each Appellant and his dependents necessary to support the amount of fines and
restitution imposed. We disagree. Each Appellant's PSR describes an excellent
job history, earning record, and high skill level in the computer field, thus
indicating that each has a good future earning potential. Both Appellants have
founded their own businesses and have a history of success at business
management.
50
Both Appellants are well educated with some college training, served in the
military, are in good health, and have no history of substance abuse. Castner
had ten years experience with Sperry Univac, earning $35,000 a year as a
manager of its East Coast Service System, before he founded SEI in 1981. He
and his wife had adjusted gross incomes ranging from $41,208 to $89,195
between 1989 and 1991. His wife is self-employed, earning $800 a month. Prior
to sentencing, Castner worked as a hotel night clerk earning $5.50 an hour, and
has been offered this job after release from incarceration.
51
Sechler worked six years for Sperry Univac, and then was employed full time
by Norden Service Company earning $1403 per week as Director of Operations
before serving as officer and director of SEI and GRI. He and his wife had
adjusted gross incomes ranging from $49,946 to $136,898 between 1988 and
1991. His wife earns $700 a month. Before sentencing, he and his wife were
living rent-free courtesy of Sechler's mother, who also paid their monthly
electricity expenses and provided them additional money when needed.
52
Although both Appellants filed for bankruptcy prior to sentencing and had
negative net monthly cash flows at the time of sentencing, the government
contends these were temporary setbacks due to the Appellants' prosecution in
this case.10 A sentencing judge may order an indigent defendant to pay
restitution if the defendant's financial circumstances indicate that he "can
feasibly comply with the order without undue hardship to himself or his
dependents." Bailey, 975 F.2d at 1032. Although Appellants at the time of
sentencing had a negative net monthly cash flow, this does not necessarily
indicate an inability to pay, particularly when their PSRs reflect past success in
business and above average earning capacities. Gresham, 964 F.2d at 1431;
Morrison, 938 F.2d at 172 (restitution upheld against defendant with negative
net monthly cash flow because of his business management experience and
education); United States v. McClellan, 868 F.2d 210, 213 (7th Cir.1989)
(restitution exceeding defendant's current ability to pay upheld because of
defendant's earning capacity and potential future increases in income).
53
Appellants offered no proof that the failure of the district court to make
separate independent findings of fact that each would have the earning capacity
to pay the amounts imposed was error. Because Appellants' PSRs contain
sufficient facts to support the imposition of their fines and restitution, we
conclude that under the plain error standard, the district court did not err in
calculating their fines and restitution.
V.
54
Castner challenges the district court's two-level enhancement of his sentence for
obstruction of justice pursuant to U.S.S.G. Sec. 3C1.1 because it found that he
committed perjury during his trial testimony. On appeal, he argues that because
he objected to a sentence enhancement that was based on his trial testimony, the
district court failed to make a specific finding addressing each element of his
alleged perjury as required by United States v. Dunnigan, --- U.S. ----, ----, 113
S.Ct. 1111, 1117, 122 L.Ed.2d 445 (1993). Dunnigan does not require such a
specific finding, but notes that "it is preferable for a district court to address
each element of the alleged perjury in a separate and clear finding." Id.
However, as the government correctly points out, a district court's
determination of enhancement for perjury is sufficient if the court's finding of
obstruction "encompasses all of the factual predicates for a finding of perjury."
Id. These predicates involve a finding that a defendant "gave false testimony
concerning a material matter with the willful intent to provide false testimony,
rather than as a result of confusion, mistake, or faulty memory." Id. at ----, 113
S.Ct. at 1116.
55
VI.
56
A.
Finally, both Appellants contend the district court erred when it refused to grant
them a two-level reduction in offense level on their sentences under U.S.S.G.
Sec. 3E1.1 for acceptance of responsibility. We disagree, bearing in mind that
the district court "is in a unique position to evaluate a defendant's acceptance of
responsibility," and its determination "is entitled to great deference on review."
U.S.S.G. Sec. 3E1.1, comment. (n.5); United States v. White, 875 F.2d 427,
430-31 (4th Cir.1989). The district court's decision whether to grant a reduction
for acceptance of responsibility is a factual determination that we will not
disturb on appeal unless it is clearly erroneous. United States v. Greenwood,
928 F.2d 645, 646 (4th Cir.1991). To receive a reduction under Sec. 3E1.1, a
defendant must prove by a preponderance of the evidence that he has clearly
recognized and affirmatively accepted "personal responsibility for his criminal
conduct." United States v. Martinez, 901 F.2d 374, 377 (4th Cir.1990). We
address each Appellant's argument in turn.
57
Sechler contends the district court erred when it refused to grant him a
reduction for acceptance of responsibility. First, he argues that the district court
should have found that he accepted responsibility for his criminal conduct
because it did not find that he obstructed justice by perjuring himself on the
witness stand. A defendant, however, is not entitled to a reduction for
acceptance of responsibility merely because he did not obstruct the
administration of justice during his trial. The adjustment for acceptance of
responsibility "is not intended to apply to a defendant who puts the government
to its burden of proof at trial by denying the essential factual elements of guilt,
is convicted, and only then admits guilt and expresses remorse." Sec. 3E1.1,
comment. (n. 2). Although a defendant may exercise his right to trial and still
receive an adjustment for acceptance of responsibility, such situations are rare
and the determination of acceptance must "be based primarily upon pre-trial
statements and conduct." Id.
58
During sentencing, Sechler admitted his failure to realize that the nine percent
charge was not allowed under SEI's contract with the Navy, but still maintained
that, although he recognized he was wrong, he did not intentionally defraud the
Navy. Intent is an essential element of major fraud against the United States,
and the jury must have found beyond a reasonable doubt that Sechler intended
to defraud in order to convict. See 18 U.S.C. Sec. 1031. Thus, the district court
did not err in refusing to adjust downward when Sechler, by denying his intent
to defraud, did not completely accept responsibility for all of his criminal
conduct. See United States v. Strandquist, 993 F.2d 395, 401 (4th Cir.1993)
(partial admission of acts constituting crime, without admission of crime itself,
is not acceptance of responsibility).
59
Second, Sechler argues that the district court abused its discretion in refusing to
award him an adjustment for acceptance of responsibility when it granted such
a downward adjustment to his co-defendant Scobey. We disagree. The evidence
supports the district court's finding that Scobey played a lesser role in the
scheme to defraud the Navy. The district court sentenced both Scobey and
Sechler within their applicable Sentencing Guidelines ranges. "We reject claims
of disparate sentences when they are based solely on a lesser sentence imposed
on a codefendant, and the defendant's sentence falls within the applicable
guideline range." United States v. Allen, 24 F.3d 1180, 1188 (10th Cir.), cert.
denied, --- U.S. ----, 115 S.Ct. 493, 130 L.Ed.2d 404 (1994). We conclude that
the disparity in Sechler's and Scobey's sentences, based in part on the district
court's decision to award only Scobey a downward adjustment for acceptance of
responsibility, does not indicate an abuse of discretion.
60
For the above reasons, we therefore find that the district court did not commit
Castner also contends that the district court erred when it refused to award him
a sentence reduction for acceptance of responsibility. We disagree. The district
court specifically found that Castner did not accept responsibility for his
criminal acts because he failed to admit that his actions were wrong. The court
further found that, as to the unallowable nine percent materials support fee,
both Castner and Sechler showed "no remorse whatsoever ... [for] blatantly
cheat[ing] the United States Government [out] of in excess of $50,000." (J.A.
1077.) Castner still maintained at his sentencing hearing that he did not intend
to defraud the Navy. As we previously indicated concerning his co-defendant
Sechler, the jury must have found Castner's intent to defraud in order to convict.
Castner did not admit his intent, thereby failing to accept responsibility for all
of his criminal conduct. See Strandquist, 993 F.2d at 401. Furthermore, Castner
concedes that his obstruction enhancement, which we have upheld in section
V., indicates that the district court did not commit clear error when it refused to
award him a reduction for acceptance of responsibility. United States v. Melton,
970 F.2d 1328, 1335 (4th Cir.1992). Therefore, we hold that the district court's
refusal to grant Castner a downward adjustment for acceptance of responsibility
was not clearly erroneous.
VII.
62
63
AFFIRMED.
Castner and Sechler were part owners and directors of SEI and GRI, and each
Appellant held positions as officers in each company between 1989 and 1991
Appellants conceded during sentencing that the nine percent charge was
incorrectly based on the FAR, and was not permissible under the applicable
material costs provision, 48 C.F.R. Sec. 31.205-26(e). The record alternatively
refers to this nine percent fee as a material support fee, an inventory support
charge or fee, and a materials handling fee. It is clear from the record and
briefs, however, that these references all relate to the same illegally added nine
percent materials handling fee that SEI charged the Navy due to SEI's
erroneous misunderstanding of the FAR regulations, 48 C.F.R. Sec. 31.20526(d)
5
48
In September 1990, over a year after SEI began selling GRI parts to the Navy
on a price basis, SEI wrote to the contracting officer and requested a written
determination "pursuant to FAR 31.205-26(e)(ii) ... that the price vs. cost
method be allowed." (J.A. 1209.) No such written determination was ever
provided. SEI's attorney, upon learning that SEI billed the Navy for GRI
materials at a price greater than cost, had informed Castner and SEI in April
1990 "that the Government might prosecute SEI for fraud if [it] determined that
this method violated the governing [FAR] regulations." (J.A. 1229.)
The government may, of course, contract for parts with more stringent material
specifications than are standard to the trade, and is entitled to receive precisely
what it requested under the contract. Blake Constr. Co. v. United States, 28
Fed.Cl. 672, 688-89 (1993) (government may even contract for snowmen in
August)
Thus, this case is distinguishable from United States v. Chatterji, 46 F.3d 1336
(4th Cir. 1995), where the defendant's conduct resulted in no actual loss
because the products--commercial therapeutic drugs that received FDA
approval due to defendant's regulatory fraud--"were exactly what they
purported to be." Chatterji, 46 F.3d at 1341. In finding no actual loss, we
emphasized that the case did not involve product substitution where the product
sold was not what it was claimed to be. Id
10
Castner's PSR indicated a negative net monthly cash flow of $388, and although
it indicated a joint net worth with his wife of $12,283.55, the PSR also stated
that Castner had filed for bankruptcy and claimed to owe a debt in excess of
$212,000. Sechler's PSR indicated a negative net worth of $72,379 and a
negative net monthly cash flow of $130. Sechler contested $60,000 of the debts
contributing to his negative net worth as belonging to Castner because this
amount arose out of SEI and GRI's failure to pay taxes while Castner was in
charge of the companies